ACCA Strategic Professional · Advanced Financial Management · Financing acquisitions and mergers
Alder plc plans a cash offer for Birch Ltd. Birch has 5 million shares in issue, trading at $4.00 before any bid. Alder expects to pay a 30% premium over this price. What is the total cash consideration required?
The cash consideration is $26.0 million. A 30% premium on a $4.00 share price gives an offer of $5.20 per share, and multiplying by 5 million shares gives $26.0 million. The unaffected market value of $20 million excludes the premium.
- A$20.0 million
- B$24.0 million
- C$26.0 millionCorrect
- D$30.0 million
Explanation
Offer price per share = $4.00 x 1.30 = $5.20. Total consideration = 5 million x $5.20 = $26.0 million. Paying only the market value ($20.0m) ignores the premium, and $24.0m results from adding a $1 premium.
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